Correlation Between Volkswagen and PULSION Medical

Can any of the company-specific risk be diversified away by investing in both Volkswagen and PULSION Medical at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Volkswagen and PULSION Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Volkswagen AG VZO and PULSION Medical Systems, you can compare the effects of market volatilities on Volkswagen and PULSION Medical and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Volkswagen with a short position of PULSION Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and PULSION Medical.

Diversification Opportunities for Volkswagen and PULSION Medical

-0.6

Correlation Coefficient

Volkswagen  PULSION Medical

Excellent diversification

The 3 months correlation between Volkswagen and PULSION is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and PULSION Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PULSION Medical Systems and Volkswagen is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Volkswagen AG VZO are associated (or correlated) with PULSION Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PULSION Medical Systems has no effect on the direction of Volkswagen i.e., Volkswagen and PULSION Medical go up and down completely randomly.

Pair Corralation between Volkswagen and PULSION Medical

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to under-perform the PULSION Medical. In addition to that, Volkswagen is 1.34 times more volatile than PULSION Medical Systems. It trades about -0.04 of its total potential returns per unit of risk. PULSION Medical Systems is currently generating about 0.01 per unit of volatility. If you would invest  1,600  in PULSION Medical Systems on October 9, 2024 and sell it today you would earn a total of  0.00  from holding PULSION Medical Systems or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Volkswagen AG VZO  vs.  PULSION Medical Systems

Volkswagen AG VZO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG VZO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Volkswagen is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

PULSION Medical Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PULSION Medical Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, PULSION Medical is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Volkswagen and PULSION Medical

The main advantage of trading using opposite Volkswagen and PULSION Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen position performs unexpectedly, PULSION Medical can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in PULSION Medical will offset losses from the drop in PULSION Medical's long position.

The idea behind Volkswagen AG VZO and PULSION Medical Systems pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.